Borregaard Asa

Good morning and welcome to this second quarter 2025 presentation for BorderGuard. My name is Per Sørle. I'm the CEO of the company and I'll be joined during this presentation by Per-Bjarne Lyngstad, our CFO, and we will take you through this agenda. I'll talk about the highlights in the quarter, the market situation for the business segments, the environmental investment that we have just passed at the board level and also the outlook for the remainder of the year. And then Per Bjarne will come back and talk about the financial performance in more detail. First of the highlights for the second quarter, EBITDA came in at 522 million, up from 510 million in the same quarter last year. We saw strong performance in BioSolutions, where the growth again was driven by increased sales to agriculture. We also saw a very good result in biomaterials, where higher sales prices, improved product mix and increased sales volume contributed positively, but this was partly offset by increased wood costs. In fine chemicals, the result came down, and this was driven by lower sales prices for bioethanol. Altogether, we had positive net currency effects across all business areas. Then on to the market situation, first with BioSolutions. The sales volume came in 2% higher than the same quarter last year. And again, this was driven by a broad portfolio of agriculture. So there's no single product group that stands out. We have a broad offering to agriculture. The average price in sales currency is in line with the same quarter last year. however we have guided for a seasonally lower product mix in less favorable product mix in the in the second quarter compared to the first quarter so in indicating that prices per product line is stable however there is a mix change that takes the price down somewhat compared to the first quarter The Van Lin products, it continues to be a positive impact from U.S. anti-dumping duties on Van Lin from China. However, this is again a limited impact in the quarter. So it is not really a deciding factor for explaining the increased result. A positive net FX impact in the quarter as well. Then on to buy materials. Strong performance in the quarter. The average price in sales currency is 10% above the same quarter last year, and this is primarily driven by price increases. However, the sales volume is also 4% higher than in the same quarter last year. And more importantly, the share of highly specialized grades has increased compared to the same quarter in 2024. So this is also a factor in the average sales price. However, the primary driver is the price increases. Also in this business area, a positive FX impact. Then on to fine chemicals. We have seen continued lower sales prices for bioethanol, and as we have explained before, EU incentives have increased the supply of advanced bioethanol into the market. So there is a supply-demand imbalance that is driving prices down at the moment. In fine chemical intermediates, we have a slightly weaker product mix compared to the same quarter last year. and a positive NetFX impact here as well. Then we just want to inform the market that the board has approved an environmental investment during the second quarter at the Salzburg Biorefinery. This is an investment of 138 million NOC and it's regarding a 30 megawatt electric boiler. This is part of the transition plan to meet the 2030 climate targets and it will reduce CO2 emissions and increase the renewable energy share in our total portfolio. We have talked in the past that environmental investments are a hybrid in the sense that they are somewhere in between maintenance capex and expansion capex. Environmental investments usually have a cost savings side, but they don't usually meet the full internal rate of return requirement of a minimum 15%. However, we believe that this could be a financially sound investment. It will lead to lower energy costs and reduced exposure to CO2 quotas in the European Union. So it's a good chance that this investment will meet our hurdle rate of 15% return on capital. The expected reduction in CO2 emissions is up to 18,000 tons, which will actually move the needle at the Salzburg Biorefinery. And the first phase is operational from 2027 with full effect from 2030. So we feel that we are comfortably on our way to deliver on our 2030 targets. then finally i'll talk about the outlook which is quite in line with what we said after the first quarter in biosolutions the sales volume in 2025 is forecast to be approximately 330 000 tons the sales volume in the third quarter is expected to be largely in line with what we delivered in the third quarter in 2024 And the anti-dumping duties on van lin from China are still expected to have a positive, but again, a limited impact on the result. In biomaterials, the sales volume in 2025 is forecast to be approximately 150,000 tons. However, the share of highly specialized grades are expected to be higher than in 2024, which is positive for the mix. In the second half, 2025, the average price in sales currency is expected to be largely in line with what we had in the first half of 2025. So more or less unchanged pricing going into the second half. The sales volume in the third quarter is expected to be in the range of 35,000 to 38,000 tons. In fine chemicals, the sales prices in the second half for advanced bioethanol and the volume are expected to be largely in line with what we saw in the first half in 2025. On the other hand, the sales volume for fine chemical intermediates is expected to increase versus what we had in the second half last year. On the cost side, the wood cost in the second half 2025 will be approximately 5% lower than what we had in the first half of 2025. Again, I should explain that when we talk about wood costs, those costs are delivered at our biorefinery in Norway, which means that there is a transportation component of 25% to 30% in the wood cost, and the wood cost itself is 75% to 75% of the overall wood cost. Again, looking at price developments in wood cost and also the delivery patterns and also the inventory levels going in and out of the second half, our expectation is that the price cost will come down roughly 5%. There will also be a positive contribution from the investments that we have completed within environmental issues to reduce energy costs and CO2 emissions. That will also have a positive impact on costs. Again, we have the uncertainty related to tariffs and conflicts and war that may impact Borgo's market and costs, but we don't have any particular news to report at this point. So that completes my outlook for the remainder of the year. I will now hand over to Per Bjarne for the financial performance and the figures.

Thank you, Per, and good morning, everyone. Borregaard's operating revenues increased by 5% in the second quarter compared with the second quarter of 2024, mainly as a result of higher sales prices and volume in biomaterials. EBITDA increased by 12 million NOK to 522 million. The result in biosolutions and biomaterials increased, while fine chemicals had a lower result. Net currency effects were positive by about 35 million ok compared with the second quarter last year. The EBITDA margin ended at 25.5%, close to the margin in the same quarter in 2024 and in the first quarter this year. Earnings per share increased to NOC 2.56 compared with 2.45 in the second quarter last year. The increase in earnings per share was mainly due to the improved EBITDA adjusted for tax. In biosolutions, continued growth in sales to agriculture were the main reason, both for the increase in operating revenues and for the improvement in EBITDA compared with the second quarter last year. Operating revenues increased by 3% and EBITDA reached 338 million NOK, 20 million above the second quarter last year. Anti-dumping duties on vanilin from China into the US had a positive but limited impact for Beauregard's vanilin products. The net currency impact was positive in the quarter, and we had a strong 28.5% EBITDA margin in the second quarter, close to the level we achieved in the second quarter last year and in the first quarter this year. Biomaterials operating revenues in the second quarter were 19% higher than in the second quarter last year, mainly as a result of higher sales prices and volume. EBITDA was 143 million NOK, 53 million higher than in the same quarter last year. The improved result was due to higher sales prices, an improved product mix, and increased sales volume, partly offset by higher wood costs. Net currency effects were positive also for biomaterials. The EBITDA margin increased to 19.3% in the second quarter, close to five percentage points higher than in the same quarter last year. Operating revenues in fine chemicals were 25% below the second quarter of 2024, mainly due to lower sales prices for bioethanol. Lower sales prices for bioethanol were also the main reason for a lower EBITDA in fine chemicals. EBITDA ended at 41 million NOC, compared with 102 million in the second quarter last year. For fine chemical intermediates, the result was impacted by a slightly weaker product mix compared with the second quarter last year. Net currency effects were positive for fine chemicals also in the quarter. The EBITDA margin was 24.4%, 21 percentage points below the same quarter last year. The net currency impact on EBITDA was, as I said, positive by about 35 million NOK compared with the second quarter last year. The positive impact was mainly a result of reduced losses on currency hedging. The positive impact from reduced hedging losses were partly offset by the impact from a stronger Norwegian kroner, especially compared with the US dollar. Using Borregaard's currency basket, the Norwegian kroner was about 2.5% stronger than in the second quarter last year. Using currency rates as of yesterday, the net currency impact for the full year of 2025 is now estimated to be about 105 million NOK compared with the full year of 2024. The corresponding impact for the third quarter is estimated to be positive by about 20 million NOK compared with the third quarter of last year. Borregaard had a cash flow from operating activities of 385 million NOK in the second quarter. In the quarter, the cash effects from EBITDA and a moderate reduction in net working capital were partly offset by tax payments. Investments were 239 million in the quarter. The largest expenditures were related to the Salzburg site and ongoing environmental investments, the de-bottlenecking of the site and specialization projects in biosolutions. In addition, Borregaard participated in a capital raise with 55 million NOK in Alginor. In July, Borregaard's commitment in a repair offering to the capital raise in Alginor resulted in an additional investment of 23 million NOK. Net interest bearing debt increased by 229 million NOK in the quarter. The net interest bearing debt was impacted by the dividend payment of 424 million NOK in April. At the end of the second quarter, Borregaard is well capitalized with an equity ratio of 57% and a leverage ratio, which is net interest bearing debt over EBITDA, of 1.20%. And that concludes today's presentation. Per Sørli and I will now be ready to answer any questions from those who follow the webcast. Our Director of Investor Relations, Knut Harald Bakke, will moderate webcast questions.

Thank you. First question from Marcus Gavelli of Pareto Securities regarding wood costs. Is there a significant discrepancy between what you're seeing in the Nordic pulp market compared to the rest of Europe? Just asking because we've seen other Nordic peers guiding for larger drops.

i'm not sure exactly how these are presented that's why i made the point that we present these costs landed costs at our site in norway which means that there is a significant transportation component which means that when we say five percent the price reduction on wood cost is higher the wood itself is higher than the total cost for us So I don't know how other people present the same number, but it is well known that the wood cost level in the Nordic region is much higher than in Europe and other parts of the world.

Second question from Magnus Rasmussen of SEB regarding bioethanol and fine chemicals. What can you say about volumes in bioethanol sales over the past three quarters? Fine chemicals EBITDA has been very stable for three quarters, while it historically has varied with the number of bioethanol shipments from Sarpsborg. Should we at current bioethanol price levels expect a more stable EBITDA level around what we have seen for the past three quarters?

One thing you should remember is that we had a slightly weaker product mix in fine chemical intermediates in the second quarter this year. So that will probably give us slight lift in the two remaining quarters for the full year. But the run rate is not far from what we've seen so far, at least in the two last quarters or three last quarters. So it's close to that level but maybe a little bit better in the second half but not much.

I would like to add that to just remind that bioethanol advance, even though it's an advanced bioethanol, this is not a typical Beauregard specialized product. So it's really the market balance that sets the price, which is not normal for the types of markets that we are active in. So it's hard for us to exactly predict what the market price will be. This is really dependent on the development in supply of advanced bioethanol, which is driven by the incentives. But I can also remind the market that there is a case going in the EU that there has been some fraud issues connected to what has been approved as advanced bioethanol, and we don't know how that will play out and how that will influence the market balance going forward.

So a follow-up question on bioethanol and fine chemicals from Marcus Gavele of Pareto Securities then. Assuming bioethanol prices remain stable, is there any other reason to expect fine chemical margins to improve from current levels over the next year or so?

I think it goes back to what I just said, that out of the markets where Beauregard is active, this is the most commodity-like market. So it's really all down to how the market balance will play out going forward.

Next question from Elliot Jones of Danske Bank regarding agriculture. Can we expect the dynamic of continued sales into agriculture to remain for the second half of 2025 and into 2026? Or do you expect this to tail off at some point?

Well, it has been going on not only for the first half, it has been going on for several quarters now. And we think that we are well positioned to benefit from, let's say, green trends in the agricultural markets. And we are also seeing that this is across the whole portfolio. So it's not just one single product line that is really benefiting from this trend. So, yes, we think that it will still be a very attractive market for Borgar going forward.

next question from andres castano smaller of berenberg related to specialty cellulose can you please elaborate on the mix improvements in cellulose products which end markets are doing well are you seeing normal demand from the u.s for your cellulose products after april 1st

Well, first, the latter part first. I mean, historically, Beauregard has not really sold any volumes into the U.S. As we reported after the first quarter, we said that last year was an exception because we sold a certain volume into the U.S. last year, which was driven directly by the closures in the U.S. and Canada by GP Foley and the Timiskaming facility at Ryan. This year, we expect to sell a lower volume again to the US, so it will not be a significant volume going into the US. But the demand increase is driven partly by the closures, the two closures of capacity that happened over the last two years. has had an impact on the overall market balance. So this means that Beauregard has openings in certain areas like casings, for instance, high quality casings where GP used to be a player in the past.

Then a question from Niklas Gehin of DNB Carnegie regarding the environmental investment. What energy source is the new electric boiler meant to replace? Is this electric boiler meant to be used when electricity prices are low or more on a continuous basis? Can you say how much CO2 emissions is coming from the current energy source today?

Well, this is primarily a replacement for LNG. And if you look at historical price levels there, it's, Borgard has, let's say, Borgard has, we have a very flexible energy system where we can use electricity, LNG, and fuel and oil. and we can switch within an hour, if you like. So we can optimize our energy consumption. But the end game, of course, is to reduce the CO2 emissions. This is the main source of CO2 emissions for Beauregard, and we want to reduce that. Primarily, the target here is to reduce the LNG consumption and replace it with electricity.

I would also add that when you compare LNG prices and electricity prices, the electricity with spot price in Norway is really what our landed cost, while LNG price, the one you see on the Dutch TTF, There we have a higher landed cost than what you see there due to, among other things, transportation. So you can't really compare the spot prices. You have to add something on the LNG price.

Next question from Andres Costanos Moller from Berenberg regarding the Algenor investment. Can you please describe where Algenor is in its journey and what milestones are ahead? What stake do you control Performa for the confirmed investments?

Well, Algenor is in the middle of a project to complete their first factory, which will be something between a demonstration scale unit and a commercial scale unit. And that will go online middle of 2026. So roughly close to one year from now, that will be ready to go online and that will sell food grade alginate and hopefully also a few other more advanced products that can be made from the same raw material source. So that is really the first and important step to prove the concept that it will actually work. So we have to wait until a year or two from now to see how that plays out in the marketplace.

And our stake in Algenor is now after the repair emission, 41%.

Next question from Martin Melby of ABG regarding lignin. What is your outlook for lignin prices into the second half and 2026?

Well, I mean, generally speaking, we practice value-based pricing if we can. And right now, we have been in a period where we have had fairly flat pricing. So I don't have any more exact answer on where we go from now. It depends on how... We see demand across, remember that we have 600 plus products in this area. So if there is a strong demand across the portfolio, you are in a better position to adjust pricing than if you have a more normal demand development. And for the last six to nine months, we have had fairly flattish pricing in sales currency.

And I think this will be the final question from Martin Melby and ABG regarding specialty cellulose. Please elaborate on the Specialty Seller Lows market balance going forward versus the last 10 years.

Well, we have said this several times. We started saying this three years ago at our Capital Markets Day, that by 2030, with normal growth rates, we expect to be a very tight market balance in Specialty Seller Lows. After we communicated this, there has been a significant change in the market balance with the closure of GP, Foley, and Timiskaming. But at the same time, there has also been a slowdown in construction. So that's the cyclical part of the specialty cellulose market. So if you have a normalization of the construction markets and if you continue with the expected growth rates, we will be tight sooner rather than later. That's been our message. The barriers to entry are very high going into these segments.

Thank you. And that concludes the Q&A session for the second quarter 2025. Thank you.

So before we close today's webcast, I would like to say a few words. Some of you, as some of you may know, I will resign as CEO of Border Guard on the 1st of August this year. And today has been my 52nd consecutive quarterly report since the listing of Border Guard in October 2012. I would like to thank the board of directors for their support to the Borgard management team through my 26 years as CEO of the company. And I'm also pleased that the board of directors has appointed an internal candidate as my replacement successor, Tom Erik Foss Jacobsen. This is very much in line with the Borgard tradition over more than 130 years. So after 35 years in the border guard management team, it's time for me to say thank you for your trust and goodbye.